IBM re-enters networking market with Brocade OEM deal

A new Ethernet networking OEM deal between IBM and Brocade promises to reshape the market. Selling Brocade's switches and routers as IBM-branded products not only boosts Brocade's profile but also threatens Cisco's market domination.

By inking a new OEM agreement with Brocade, IBM is re-entering the networking market. Big Blue announced this morning

that it will begin selling Brocade's portfolio of Ethernet switches and routers as IBM-branded products.

IBM has previously maintained an OEM agreement with Brocade to sell IBM-branded versions of Brocade's storage networking technologies. This new deal between the two companies involves the portfolio of Ethernet switching and routing products that Brocade acquired when it bought Foundry Networks last year.

As part of the agreement, IBM will start selling Brocade's NetIron MLX Series routers, its NetIron CES 2000 Series switches, and its FastIron SuperX and FastIron GS Series switches as IBM-branded products. IBM vice president of Workload Optimized Systems Jim Comfort said IBM will continue to resell Cisco and Juniper Ethernet technology, and it will continue to offer customers of its data center services a choice of various networking vendors.

The deal is a huge win for Brocade, which has retired the Foundry brand and currently sells all its Ethernet technology as Brocade products.

Cisco's allies are now its biggest rivals

The IBM-Brocade deal also signals a tremendous shift in the competitive landscape. Cisco's stranglehold on the Ethernet switching market could be slipping.

"It's another illustration that the previous partner-integrator alignment is definitely in flux right now," said Mark Fabbi, vice president and distinguished analyst with Gartner Inc.

Fabbi said that Cisco established its current dominant position in the Ethernet switching market around 2001, during the last economic downturn. That emergent dominance was partly a result of Cisco's technological advances and strategic acquisitions.

A more important factor in Cisco's rise to prominence, however, was the decision by other major IT vendors to align with Cisco, Fabbi said.

"The rest of the IT industry effectively aligned themselves with Cisco," he said. "If you went to any other part of IT and said, 'What about networking?' the alignment was just automatically with Cisco. So the system players aligned in that direction. The system integrators aligned in that direction. And you saw massive reseller alignment toward the default networking solutions being Cisco. There was almost nothing else out there."

Fabbi said things are shifting now. Cisco's expansion into unified communications and collaboration and the announcement of its entry into the blade server market with its Unified Computing System represent a wake-up call to companies like IBM and HP. HP has thrown all its weight behind its networking division, ProCurve. Now, IBM is making a similar decision with its new OEM agreement with Brocade.

More on Brocade and networking's new competitive landscape

Brocade's Foundry deal boosts its data center play, but Cisco is ready

HP ProCurve unveils data center network strategy

Cisco's Unified Computing System stirs competition, old and new

Cisco unveils Unified Computing, merging servers, storage and networks

"In IBM's case, it's a realization that IBM can't continue to be solely aligned with Cisco as a networking partner because Cisco is increasingly becoming a competitor," Fabbi said.

Putting IBM's brand on Brocade switches

In recent years, IBM has resold Ethernet switches from Cisco, Juniper and Foundry, but until this announcement it hadn't sold IBM-branded networking technology since it abandoned Token Ring more than a decade ago.

Putting the IBM brand on Brocade's switches and routers gives IBM a much stronger data center brand, according to William Terrill, principal analyst of enterprise network systems at Current Analysis.

"If you resell these things and they still have a Brocade or Foundry label, there is going to be a certain level of confusion," Terrill said. "[Customers] are going to say, 'Maybe I could buy it a little cheaper direct from Brocade,' or, 'Gee, it's a Brocade switch. IBM is supporting it, but maybe Force10 has a better high-end switch.' Once it has the IBM brand on it, it has a certain level of market panache, for lack of a better term."

By branding Brocade's switches as IBM switches, IBM avoids the "brand dilution" that can occur in certain scenarios, he said. For instance, an enterprise may have bought its Cisco or Juniper gear from IBM, which may fully support the networking gear. But a new network engineer who has a problem with a switch is likely to call Cisco or Juniper for support before calling IBM.

"Now you have a situation where it has [IBM's] name on it," Terrill said. "They support it, and if something goes wrong, you don't have to worry about it. [IBM] will take care of it."

A new world order in networking?

"I think this is a very interesting competitive situation with Cisco now," said Zeus Kerravala, senior vice president with Yankee Group. "One of the reasons IBM didn't have its own networking products was because it had this great relationship with Cisco. But with unified communications and with unified computing, the relationship between Cisco and HP and between Cisco and IBM is not the same as it was five years ago."

In order to compete in the next-generation data center market, companies need to have expertise on both the server side and the networking side, Kerravala said. IBM chose Brocade not only because of the existing storage relationship between the two vendors, he said, but because Brocade simply has the best-performing data center switches.

"I think that Foundry has been the performance leader of networking for years," he said. "While Cisco is the GM or Toyota of data center networking, Foundry has always positioned [itself] as the Porsche or Ferrari. It's not for everyone, but … those who value performance … will buy the Foundry products."

Long term, quite honestly, I expect IBM to buy somebody. I was talking to Brocade this morning and I said, 'Eventually, if this works out, IBM is going to buy you.'
William Terrill
Principal Analyst, Current Analysis

Kerravala said that OEM relationships in data center networking technology have been rare. They have been much more common in the storage industry. If the Brocade-IBM deal works, he expects other vendors to expand into this space as IBM is doing.

"Oracle just acquired Sun," he said. "Will Oracle be a network switch vendor down the road? Maybe they'll want to OEM Juniper or 3Com. This is a viable way for a relatively small company like Brocade to compete with Cisco."

The swing in network switching market share from such an OEM deal could be huge, Kerravala said, given that IBM and HP have significant influence over the network equipment buying decisions of many enterprises.

"The question now is: How much of Cisco's business do IBM and HP really control?" he said. "Cisco will claim [those companies] control almost none of it.… If that's true, we wouldn't see much change in market share. If IBM and HP [did] control the networking decisions, then you would see a change. I don't think it's the $2 billion number that HP and IBM say, and I don't think it's the $200 million that Cisco says. I think it's somewhere in between. You could see a swing of $800 million to $900 million or even $1 billion here. That's about 8% of the overall market."

Enterprises are the big winners

Terrill said these shifting dynamics in the market will only help enterprises.

"At the very least, what it does is: [Enterprises] can go to IBM, they can go to Cisco, and they can go to HP and say, 'I want you to bid on our servers. I want you to bid on our storage components, and I want you to bid on our infrastructure. And it all has to come from you. And by the way, you're bidding against HP, IBM and Cisco for all these components,' " Terrill said. "From a competitive side, and from getting more standardized bids, this is going to help enterprises quite a bit."

Eventually, IBM might take things to a higher level with Brocade, he said.

"Long term, quite honestly, I expect IBM to buy somebody," Terrill said. "It makes sense for them to buy someone they are OEM-ing. I was talking to Brocade this morning and I said, 'Eventually, if this works out, IBM is going to buy you.' "

Let us know what you think about the story; email: Shamus McGillicuddy, News Editor

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